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Tech Check
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Palm [PALM
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] has endured one of tech's great soap opera stories over the last decade or so, and the last year or two has only magnified the volatility.
And certainly over the past week alone, the drama has only increased: the hyperbolic bluster from lead investor Roger McNamee about Palm's chances against Apple's [AAPL
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] iPhone; Palm's successful offering that raised the desperately needed $83 million that will finance the upcoming smart phone Pre's release; and then the highly unusual, and embarrassing public flogging of McNamee by Palm in an SEC filing completely distancing the company from McNamee's comments, apparently worried about legal exposure for pumping a stock so close to a stock offering.
There was also the curious, tale of two companies reports where RBC Capital released competing analyst notes about Apple and Palm, with Palm seemingly portrayed as the better investor option.
When I spoke then to analyst Mike Abramsky he told me that (1) his price target (then $3.50) simply hadn't kept up with market conditions and that's why he was raising it to $5 and (2) he wasn't making a call one way or the other as to whether Palm was a "better" buy than Apple, even though Apple was rated an "under perform" or the equivalent to everyone else's "sell," and Palm was rated a "sector perform," or the equivalent to everyone else's "hold."
With today's report on Palm, there's little doubt where RBC's Abramsky sees the better buy: just a week after his last report on Palm, he takes his target to a whopping $12 a share, and upgrades shares to "outperform," or "buy."
Wow.
And he's not alone. This morning, Pablo Perez-Fernandez at Global Crown Capital spells out changes in the company's accounting and deferred revenue from Palm's webOS that he says are not properly understood by investors and some folks on Wall Street. And he says once you get your arms around the company's true finances the Palm story becomes even more compelling. I asked him today if that changes his assumptions about the stock. No, he told me, saying since he was wrong about Palm prior to the Pre unveiling in January, he remains at $15 a share and a "buy."
These two analysts are among the best wireless guys on Wall Street and they come at their targets in much the same way: The Pre will be a big seller (RBC anticipates 2.6 million webOS devices in fiscal '10, up from its prior 2.2 million units, growing 62 percent to 4.1 million units the following year. And that would lead Palm to double its smart phone market share to 2.6 percent. (Remember, people used to make fun of Apple as an also-ran with its perennially paltry market share, too! No, no, I am not, NOT saying Palm is another Apple. I'm just saying even small market share gains by Palm will be meaningful for its stock.)
Again, this isn't merely about the Pre. It's about the operating system. Unlike Apple and its iPhone OS, a new version set to be unveiled next Tuesday, Palm wants its OS on many handsets, licensing the software, as it has done in the past, to many companies. That puts it on a competitive plank with Google [GOOG
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] and Android, and of course Microsoft. Yet everyone who has seen the webOS is duly impressed by it. In other words, Pre will sell, but webOS enabled smart phones will likely sell much more.
And that's leading to another RBC point: "Given Pre's and webOS's competitive advantages and the rising importance of the Smartphone market, we foresee Palm's rising attractiveness as an acquisition candidate," Abramsky writes.
Likely contenders? RIM, Microsoft, Nokia, Samsung, LG, Sony Ericsson, Hewlett-Packard and Dell. Takeout valuations could be $15 to $16 a share, or double where Palm sits today.
Barring more internal missteps, execution issues, the ability to manufacture the Pre to scale so it meets what could be significant demand when it finally does come to market and Palm might offer some significant upside. The ducks are lining up for Palm in what seems to be a very positive way.
On the other hand, Research in Motion and Apple are still lurking, hardly standing still, have endless cash compared to Palm and far bigger pieces of the market pie. Palm has to perform perfectly and doesn't have much of a track record in that respect. But if it can, if it can execute (big "ifs" all), brighter days may finally lie ahead for the company and its whip sawed, weary investors.
Questions? Comments?
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